In their book, Blue Ocean Strategy, authors W. Chan Kim and Renee Mauborgne derive a novel business strategy and tools based on data from over 30 industries spanning more than 100 years. "The aim of [Blue Ocean Strategy] BOS is not to out-perform the competition in the existing industry, but to create new market space or a blue ocean, thereby making the competition irrelevant". The counterpoint to this strategy is "Red Ocean Strategy", a more traditional approach in which you must constantly fight to defeat the competition in your market space through aggressive sales and marketing, which is often a losing battle.
What is Blue Ocean Strategy?
While Red Ocean Strategy is a constant struggle between differentiation (development and marketing) and cost, Blue Ocean Strategy seeks to align differentiation and cost by finding a new value paradigm:
- Eliminate factors that the industry takes for granted
- Create factors that are new to the industry
- Reduce factors that are below industry standards
- Raise factors that are above industry standards
In a nutshell, Blue Ocean Strategy focuses on innovation and quality, while Red Ocean Strategy focuses on brand elevation and head-to-head competition. As markets become increasingly saturated with new competitors with lower cost structures, Red Ocean Strategy becomes unsustainable. Creating new markets and exercising leadership rather than exploitation is the Blue Ocean way to succeed.
In which ocean are you currently floating? How can you tell?
Kim and Mauborgne outline some tell-tale Red Ocean signs:
- Are you facing stiff competition from new domestic and international rivals?
- Are you faced with a deepening discount strategy to survive?
- Are you spending more on marketing with less ROI?
- Are you in cost-cutting mode as a means to survive?
- Are you under increasing pressure to merge or be acquired?
There are many factors that can lead to these symptoms, but the Blue Ocean Strategy may at least help you formulate some new directions to overcome them.
You can find out more about Blue Ocean Strategy here.